0
$\begingroup$

I'm definitely a fixed income tourist but I'm wondering if there's an easy way to back of the envelope approximate dollar PnL of an interest rate swap

For example, if I enter a $1m fixed 5y USD swap at 3% and tomorrow the quote rises 5bps to 3.05%, assuming I know the carry X bps and rolldown Y bps, what is my dollar PnL of the position?

Improve this question
$\endgroup$

1 Answer 1

Reset to default
2
$\begingroup$

If only one day has elapsed, the carry and roll down effect on the p/l is insignificant. The p/l is well approximated simply by multiplying the move in the quotation by the duration of the swap, which in the case of a 5yr swap is around 4.5. So the p/l would be 4.5*0.05%*1MM = about 2250 dollars.

Improve this answer
$\endgroup$
3
  • $\begingroup$ Gotcha thanks! Why is the duration on a 5y around 4.5 years? Is it because the payments are semi annual? So for 10y would the duration be 9.5 years? $\endgroup$
    – Michael
    Jun 22, 2022 at 18:54
  • 1
    $\begingroup$ It’s just the value of a 1bp annuity, calculated at prevailing interest rate. It would be more like 9.0 for a 10yr. $\endgroup$
    – dm63
    Jun 22, 2022 at 20:59
  • $\begingroup$ ah thanks! do you by chance have any reference/ info on how to do the calculation? $\endgroup$
    – Michael
    Jun 22, 2022 at 22:42

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge that you have read and understand our privacy policy and code of conduct.

Not the answer you're looking for? Browse other questions tagged or ask your own question.